News

Facebook: Winklevoss twins stuck with settlement, court rules

By Carol J. Williams

Los Angeles Times

Posted:
04/11/2011 11:36:19 AM PDT

Updated:
04/11/2011 09:11:20 PM PDT

Click photo to enlarge

Cameron, left, and Tyler Winklevoss, founders of social networking website ConnectU, speak to reporters as they leave the US Court of Appeals for the Ninth Circuit in San Francisco after a court hearing in a lawsuit against Facebook Inc. and its founder Mark Zuckerberg, January 2011

SAN FRANCISCO -- Tyler and Cameron Winklevoss, the Olympic rowers and identical twins who claimed that they, not Mark Zuckerberg, had the original idea for Facebook, have lost the latest chapter in their six-year legal feud. But it's a loss that comes with a pretty nice consolation prize. And it may not be the end of the case.

A three-judge panel of a federal appeals court here ruled Monday that the brothers, whose fight over Facebook's origins was the narrative arc of the Hollywood hit "The Social Network," cannot back out of a settlement they signed with the company in 2008. That settlement is now worth about $200 million, according to estimates by experts.

The twins had asked the court to undo the settlement so they could pursue their original case against Zuckerberg and Palo Alto-based Facebook, and presumably win a richer payday.

They had argued that Facebook had deceived them about the original value of the settlement, and the court roundly rejected their claims. Yet the sharply worded decision, written by Alex Kozinski, the chief judge of the U.S. 9th Circuit Court of Appeals, apparently has not persuaded the twins to give up. They said through their lawyers that they planned to ask that their case be heard by the entire appeals court.

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Kozinski wrote: "The Winklevosses are not the first parties bested by a competitor who then seek to gain through litigation what they were unable to achieve in the marketplace. With the help of a team of lawyers and a financial adviser, they made a deal that appears quite favorable in light of recent market activity."

Kozinski added: "For whatever reason, they now want to back out. Like the district court, we see no basis for allowing them to do so. At some point, litigation must come to an end. That point has now been reached."

The settlement, which included $20 million in cash and more than 1.2 million Facebook shares, was initially valued at $65 million. But shortly after signing it, the Winklevosses, and their partner, Divya Narendra, argued that Facebook had deceived them about the value of the shares, leaving them with much less than they had agreed. While they believed the shares to be worth $35.90 each, Facebook had conducted an internal valuation that priced the shares at $8.88, they claimed.

Whatever their value at the time, the shares have recently traded as high as $150, after adjusting for splits. That values the stock portion of the settlement at more than $180 million.

"The appeals court kept the Winklevosses from potentially throwing away many tens of millions of dollars each," said Eric Goldman, a professor at Santa Clara University Law School and the director of its High Tech Law Institute. "It's hard to complain too much about a loss like that."

But the twins are not giving up.

"In my judgment, the opinion raises extremely significant questions of federal law that merit review by the entire 9th Circuit Court of Appeals," Jerome B. Falk Jr., the lead appellate lawyer for the Winklevosses, said in a statement.

In a statement, Colin Stretch, Facebook's deputy general counsel, said, "We appreciate the 9th Circuit's careful consideration of this case and are pleased the court has ruled in Facebook's favor."

The dispute dates to 2003, when Zuckerberg, then a Harvard sophomore, agreed to help the Winklevosses and Narendra program a social website called Harvard Connection and later renamed ConnectU.

But instead of following through on the verbal agreement, Zuckerberg delayed work on Harvard Connection and instead worked on his own project. When pressed for answers, he stalled, according to the Winklevosses. In February 2004, Zuckerberg released TheFacebook, which eventually became Facebook.

Later that year, the ConnectU founders sued him and Facebook. Facebook countersued a year later. The 2008 settlement was meant to resolve all the claims.